Category: real estate

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Big Banks in Real Estate Brokerage

One of the biggest controversies in the real estate industry has been disputed since 2001, yet many realtors and most consumers are unaware it exists. What is it? The controversy is allowing big banks to participate in real estate brokerage.

The controversy has root in the Gramm-Leach-Bliley act of 1999, also known as the Financial Modernization Act of 1999, which generally gave banks more freedom in affiliating with other financial institutions, such as securities and insurance brokers. In 2001, the Federal Reserve Bank and the U.S. Treasury Department felt that buying and selling a home was also primarily a financial endeavor, so they pushed for legislation to allow big banks to become real estate brokers.

Banking proponents assert that allowing banks to participate in real estate brokerage is good for consumers. They state that it would increase competition and allow consumers the true “one stop shop” for financial services, and allow the reduction of costs and fees associated with the purchase of a home.

The proposed legislation was defeated consistently for several years. It remains to be seen if this will reappear in the next congress.

The opponents to the legislation have declared that the purchase of a home is not finance but commerce. The National Association of Realtors’ position was and is that finance and commerce should remain separate. Additionally, this type of legislation would be anti-competition as it would increase the general power of the financial institution which would decrease the availability of consumer choice (Realtor.org).

Additionally, there is concern over conflicts of interest. Besides that banks might push their listings just as they push to sell their proprietary mutual funds, loan officers and underwriters might be influenced to make poor loans on homes that are in the bank’s inventory. Can you imagine being turned down for a mortgage by your local bank, finding out later that your friend, who has a similar credit history, was approved because he was buying one of the bank’s listings?

Reducing costs and fees in the real estate transaction is always a great idea. The position that allowing banks to become real estate brokers would drive the cost of purchasing a home is questionable. Banks have a history of increasing fees as well as adding charges to services. A recent BankRate.com survey (December 1, 2005) confirms the view that banks have found ways to increase fees as well as hide service charges. ATM fees, returned check fees, and account maintenance fees are examples of the current focus of increases.

For a first time home buyer, the purchase of a home can be overwhelming and confusing. It is difficult enough for an average home buyer to understand the complexities of the transaction yet be able to see if the settlement sheet is padded with extra charges. Hopefully, the home buyer’s Realtor is able to spot any charges which are excessive or fake. However, if the Realtor is taken out of the process, the home buyer might not be able to spot any sham or excessive charges.

The issue of big banks becoming real estate brokers is not just an issue of competition, but it may ultimately become an issue of privacy as well. Although the controversy is dormant for now, it is yet to be decided. As banks continue to push for more freedom, the debate could turn into a nasty battle.

By Dan Krell
Copyright © 2006

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Housing market 2006

In reading some of the real estate forecasts for 2006, I was reminded of H. G. Wells’ novel, “The Shape of Things to Come.” What does H. G. Wells have to do with Real Estate? Nothing. Well almost nothing. Any self respecting science fiction enthusiast knows that the 1933 novel about the future of mankind was eerily prophetic about the outbreak of the Second World War as well as some technological advances. However, the novel was pure science fiction. The housing market 2006 is another matter

So I had to ask myself, “what is it about economic forecasts, real estate market predictions specifically, that seem to be prophetic in one regard and erroneous in other details?” I believe that in order to get a balanced perspective you have to get information from various sources and pull the pertinent plausible statements to form the picture. The same holds true to the coming year in the local real estate market.

So what can we expect from the housing market 2006 ?

The National Association of Realtors predicts 2006 to be the second best year in history for sales activity (Realtor.org). David Lereah, chief economist for the NAR, stated in a NAR press release on December 12 that he feels that economic conditions will be positive for the housing market in the coming year. He states that general economic conditions will be good to help sustain a stable real estate market.

Conversely, the UCLA Anderson Forecast (UCLAForecast.com), the folks who accurately predicted the recession in 2001, predicted in a recent press release that there will be a “weakness” in the national economy due to problems in the housing sector. Their vision is a weaker economy through 2007 because of a slower housing market and loss of construction and housing related jobs. The bottom line is that they believe that there is a rough road the next few years, but there will be no recession.

Interestingly enough you might think that Realtors who are active in the local market would have cohesive and consistent outlook on the future. That is not the case. Local Realtors who are quoted in Realty Times (realtytimes.com) share differing opinions about the state of the present market and offer differing views about the near future.

So, what can we make of all this confusing information? Well, with regard to mortgage interest rates, the Fed is expected to have at least one more increase planed, so it will remain to be seen where mortgage interest rates level off. Currently, mortgage rates are higher than they have been in recent history, but still hover at a respectable 6.25%. Additionally, home sales have dropped off from last year’s pace but prices are still increasing. So economically, it seems as if there is a sense of return to equilibrium.

What people have described as a bubble bust, or a downturn in the real estate market, is actually a return to a more balanced market. The dysfunctional expectation that a home should sell for $25,000 (or more) than the last home sold, and have many home buyers place an offer on one home in a moments notice will change to the more reasonable expectation of selling at market value and having a buyer contract on a home in several (or more) weeks.

By Dan Krell
Copyright © 2006
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Housing the Workforce

It can not be over stated how good the real estate market has been for many home owners. Home appreciation over the years has made many home sellers feeling financially secure. But how about housing the workforce?

Housing appreciation and home prices are not the only housing indicators escalating. There is an ongoing trend of decreasing housing affordability for lower and middle income families. Every year there are more lower and middle income home buyers who were edged out of the market or for that matter did not even venture to purchase a home, because home prices escalated beyond their ability to afford a mortgage.

Housing the workforce is an issue for many home buyers. Workforce housing as defined on the Montgomery County Department of Housing and Community Affairs web site (montgomerycountymd.gov) as affordable housing for families who fall between 80% and 120% of the median income for the Washington metropolitan area. In 2005, a family of four would fall into this category if the household income was between $71,400 and $107,000. Additionally, the county considers anyone who works in the county (e.g., police, firefighters, nurses, and teachers) and cannot afford housing to fall into this category as well.

It is clear that for many years there has been support for affordable housing and home ownership in general, as can be seen by the many state and county programs available, for qualifying home buyers. As a matter of fact, there has been an affordable housing conference in Montgomery County since 1991. The goal of the conference has always been to address issues related to affordable housing. The mission of the conference, as stated on their web site (affordablehousing.org), is to bring together elected officials, housing and community leaders, business professionals, activist, and others to work toward affordable housing solutions. The theme for the 2005 conference was “Work Here, Live Where?” and addressed the growing crisis of workforce housing.

The increasing number of families who earn more than the maximum to qualify for a Moderately Priced Dwelling Unit (MPDU) yet can not afford to purchase a home in the county are rising to crisis levels. The crisis has been identified by some governmental departments, yet others lag behind. Many commissioners who attended The Governor’s Commission on Housing Policy on January 2004 as given by the Maryland Department of Housing and Community Development (see minutes from January 6, 2004) concluded that workforce housing issues should be addressed.

The Maryland-National Capital Park and Planning Commission (mc-mncppc.org) has taken on the issue and generated a strategic plan as well as a web site to address the problem. Additionally, the MNCPPC created a program called “Housing Montgomery: Housing the People who make Montgomery County Work.” The program is to focus on initiatives that function to increase the supply and affordability of housing, improve data tracking, and expand community outreach.

The program development many initiatives, which include the development of a workforce information packet, discussion of employer assisted housing, discussion park workforce housing, discussion of Montgomery County Department of Parks and Planning employer assisted housing, and to expedite approvals for affordable housing.

Workforce housing will continue to be a concern for many years to come as housing costs continue to escalate. Hopefully, community leaders will continue to develop an agenda to assist Montgomery County’s workforce to live in the county

By Dan Krell
Copyright © 2006

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Surfing for Homes

Before you were surfing for homes on computers, brokers kept track of their listings by card catalogues. As a matter of fact, these old cards were displayed at the old Rockville office of Metropolitan Regional Information Systems, Inc. (MRIS), (the old multiple list service).

During that time before the MLS, brokers were not required to share information and listings with other brokers. This proprietary system allowed the broker to maintain the buyers that came to seek information on homes for sale.

Looking back, home buying was not complicated. Home buyers would go to the local real estate office and see what homes were available. Homes for sale and other information were limited to what your Realtor knew. Most likely, the only homes your Realtor showed you were homes that were listed by that real estate firm. Needless to say, the real estate industry has come a long way since then.

Since the advent of the multiple list service, technology has made a huge impact on the real estate industry. Presently, surfing for homes has never been easier. Home buyers can look for homes on the internet and get listings via email and cell phones. As a matter of fact, if you go onto the internet, you will have hundreds of Realtors (including myself) as well as Real Estate Companies offer to send you home listings.

With all of this information flying around, what’s the most reliable and accurate information available?

The most reliable and accurate information available for Realtor listed homes is through MRIS. Unfortunately, if you are not a real estate professional, you can not have a membership to peruse the database. The good news is, however, that all the other databases and online searches of Realtor listed homes are fed by the MRIS. The quality of the information depends on the website’s ability to update their information from MRIS and how it disseminated.

There are a few popular internet searches that offer free searching without offering information. If you choose additional information or services from these sites, you must fill out an information page giving at least a name and email address. Although you get to search on your own, the sites do promote realtors and other real estate professionals.

Older style internet home search services forward your information to a local Realtor who will send you the information you seek. All these sites are useful and you can get the information you desire as long as your search criteria is specific enough. Unfortunately, if your search criteria are too specific, you will miss seeing homes that you may actually consider buying.

There are many alternative sites tthat allow surfing for homes too (such as craigslist.org). These sites allow specifc posts by brokers and FSBO’s.

Having all the technology and information available online is useful, however there are drawbacks. The main drawback is that most of the information is limited and you must contact someone for additional information. No matter what manner of internet home searching you choose, you will be more informed than not having done the search at all.

By Dan Krell
Copyright © 2016

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Remodel instead of Move?

Moving up has been a right of passage for families for years. Families have been moving up for one reason or another, usually because of the need for space or just to move to a new neighborhood. However, spiraling home prices made many to rethink the usual move up, and instead make improvements on their homes. Rather than buying the four bedroom colonial they need due to a growing family, homeowners are adding rooms and enlarging the spaces they already inhabit. They’re thinking remodel instead of moving.

If you are unsure of making improvements or selling your home, there are some factors to consider. RemodelorMove.com (www.remodelormove.com) lists the top reasons for remodeling instead of moving includes: you like remodeling; you like your home floor plan; you like your neighbors; you like your yard; you have a great location; you will get exactly what you want; and you feel that it can enhance the value of your home. If you’re trying to decide whether remodel or move, you may find some of the reasons to remodel resonate.

If you decide to remodel rather than move, there are some considerations. According to RemodelorMove.com you should consider how long you are going to be in your home, the costs involved, and the timing of the remodeling before you move.

If you are planning to stay in your home less than a year, you should consider the actual cost of the improvements against the return you may get on your upcoming sale. However, if you plan to be in your home for a few more years or longer consider the factors of personal pleasure and comfort.

If you are concerned with cost vs. value, a great resource that every turns to for their annual report is Remodeling Magazine (remodeling.hw.net). According to Remodeling Magazine, return on investment depends on the value of the house itself, the value of similar homes in the immediate area, and the rate property values are changing in the surrounding neighborhoods. Some projects will recoup more than 100% of the original investment, however overall in 2004 the return of investment was 80.3%.

The following are the top improvements listed listed in this year’s Remodeling Magazine annual report in order of return on investment: minor kitchen remodeling -92.9%; siding replacement-92.8%; midrange bathroom remodeling- 90.1%; deck addition- 86.7%; upscale bathroom remodeling- 85.6%; and window replacement- 84.5%. You can view the rest of the 2004 report on the website.

Both selling and remodeling can be large propositions that can bring a lot of joy. There are many resources available to help make your decision. But you should verify the information you get, especially from the internet. Additionally, you should consult a local contractor and a Realtor to assist with costs of improvements and neighborhood home values.

By Dan Krell © 2005.

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